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No More Fideicomiso For Home Buyers

Date Published: 04/26/2013

Mexican Government Proposal to End Restricted Zone for Residential Real Estate in Mexico: No more Fideicomiso (Bank Trust)

Why things are the way they are

The reason that the Mexican constitution is written to keep foreigners from owning real estate within the so called restricted zones date back to the end of the Mexican revolution when the security of the nation was at stake.  The laws were made to prevent foreigners from permanent establishment on the coasts and borders.

More about the bill

To further elaborate on the contents of the bill, it should be said that this bill would only affect foreign residential ownership.  Commercial real estate in the restricted zone (100 kilometers from any border and 50 kilometers from the coast) will remain restricted as to foreign ownership.  Furthermore, direct ownership in the restricted zone will not be allowed for any profitable purposes.

What does this mean?

These details bring about many questions that still have yet to be answered and which could come up during the next step of the approval process when the Senate will be reviewing the bill for approval.  The Senate may also make changes to the measure to fill in the gaps where questions like the following have arisen before it is ready for further approval:

-Will a residential rental property require direct ownership? 
-How would U.S. and other foreign corporations or L.L.C.s and Trusts own coastal real estate with the proposed amendment? 
-How would fractional ownership be affected?

The fate of the fideicomiso

We do know that it would still be possible to hold ownership in a traditional fideicomiso (Bank land trust) in the event that the measure makes it through final approvals.  Even though not necessary, a voluntary fideicomiso could be used for a number of reasons.

1.    It may be more economical for foreigners already having their property held in a fideicomiso to leave it that way.  In the event that a foreign property owner were to take their title out of the fideicomiso and hold title themselves, it is projected that the fees to process transfer of title from Bank to foreigner would be similar to the closing costs in acquiring property for the first time.  Depending on the lifespan of the fideicomiso, this may or may not make sense.

2.    There are benefits to having your property in a fideicomiso in the event of a death.  The fideicomiso can be written with a secondary beneficiary, making inheritance fairly simple.

3.    A fideicomiso could create an extra “umbrella” of security for a foreign property owner.

If the bill passes foreigners would still have the obligation to obtain a Permit from the Mexican Ministry of Foreign Affairs.

What it will take for the bill to pass

Next the Senate will have to pass the bill.  This could take time as the Senate has the option of proposing changes to the bill.  In the event that the Senate chooses to make changes, these would have to be voted on again by the Chamber of Deputies, which has shown overwhelming support thus far as the initial vote was 356 to 119.

Once the Chamber of Deputies and Senate are satisfied with the contents of the measure, it is then sent for approval by the State Legislatures.  There are 32 State Legislatures and 16 of those will need to vote yes.

Support

It is backed by Manlio Fabio Beltrones who is one of the most influential politicians in Mexico.  He is one of the 3 main sponsors of the proposal.  Both Beltrones’ party, the PRI, and the PAN are backers of the measure.  These parties suggest that opening the restricted zones up to residential foreign land ownership will cause a stimulation of the stagnant Méxican real estate market as well as bring more tourist monies to the country.

Opposition

The opposition, such as the PRD, the PT and The Union of Indians and the Farmer’s Force, are worried that the bill puts sovereignty for México in danger.  They believe that real estate speculation will occur thus raising prices and making it impossible for less wealthy Méxicans to purchase their country’s coastal lands. 

It is worried that this amendment would create the opportunity for further changes to the constitution like the privatization of the oil industry and public lands on the coast.  From the PRD, Socorro Cesenas Chapa is quoted as saying, “Under no circumstances can we allow this initiative to go forward…It’s a form of privatizing our coastlines.”

The banks are currently taking in approximately $30 million US in fideicomiso fees each year.  Although there are no reports of bank opposition as of yet, since they are major beneficiaries of the current requirements an opposition is plausible.

The media has not released much press on the opposition.  This supports the passing of bill since the politicians will not have to answer to an opposition that is not apparent to the public.

Thank you for reading.  Please contact me with any Baja California Sur Real Estate Needs. Please check back for updates.

Timothy M. Nuanes

Real Estate Consultant

Office       624 142 6039

Mobile     624 125 1644

CAN/US  949 306 5859



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